Introduction

MFI is a momentum indicator that is used to determine the conviction in a current trend by analyzing the price and volume of a given security.

The money flow index is similar to the relative strength index. The main difference between MFI and RSI is that the MFI also accounts for volume, whereas the RSI do not accounts for volume. Many traders watch for opportunities that arise when the MFI moves in the opposite direction as the price. This divergence can often be a leading indicator of a change in the current trend.

The Money Flow Index (MFI) is an oscillator that uses both price and volume to measure buying and selling pressure. MFI was created by Gene Quong and Avrum Soudack, MFI is also known as volume-weighted RSI. MFI starts with the typical price for each period. Money flow is positive when the typical price rises (buying pressure) and negative when the typical price declines (selling pressure).

Formula

Typical Price = ( High + Low + Close ) / 3
Raw Money Flow = Typical Price * Volume
Money Flow Ratio = ( 14-period Positive Money Flow ) / ( 14-period Negative Money Flow )
Money Flow Index = 100 - 100 / ( 1 + Money Flow Ratio )

Advantage

MFI is a momentum indicator that is used to determine the conviction in a current trend by analyzing the price and volume of a given security.

Sample Calculation

Technical chart for MFI